So there is a lot of bad news about global stock markets and lots of doomsayers about what it will do to startups and their funding plans.
But there are some positive effects. I just received an email from a Startup telling me they had decided to increased pricing on all their plans.
They indicated they decided to focus on improving their product for their customers and aiming to be revenue funded instead of chasing growth and burning capital.
I think we are going to see a lot more Startups aiming at self funding over the coming months.
The smart startups are going to look at their plans and work out how they can deal with disruptions to the funding markets.
My guess is they will bring revenue forward, slow their expenses, focus on profitable growth and perhaps delay initiatives that don’t bring in cash.
All of this is pretty sensible.
There will be the sob stories, those who didn’t see the writing on the wall, who continued to spend like drunken sailors and they will pay the price eventually.
However Im still relative optimistic about the funding market for startups.
Yesterday I noticed one of the most tweeted articles was around how the current Global Stock markets were going to hurt Startups, people are funny, they love to spread bad news, “Told You So” it was all too good to be true they said.
So my take on this is a continued rout on the stock markets will affect startups but it doesn’t seem like 2008 or 2000 to me.
Compared to the Dot Com boom, we have web/app enabled businesses making substantial changes in the way business and consumers function, massive increases in capability, significant increases in productivity, disruption to shitty old world business models that were more about the incumbents needs than their customers.
Contrast this to the crash in 2000 where the biggest focus seemed to be on different ways of buying or shipping pet food or fashion (or whatever e-commerce item you want to insert).
The hyper competition in Angel rounds will probably decrease if the Angels are feeling less rich.
Valuations may flatten, but this is ok in my view, you have to leave something for the buyer at the end, otherwise they don’t buy.
If your valuation is sky high all the way to IPO, then there won’t be much left for the public investors and you won’t get an IPO away.
VC Firms are a different situation, they still need to invest their funds, from day one of their 10 year funds they are on a timeline.
They need to get the money invested in the first few years and then exit in the later half of the fund.
They will probably get a bit pickier, in these situations there is always a flight to quality, they won’t have as much competition.
I think its fair to say that Startups need to be prepared for some disruption to their fund raising plans and the smart ones are going to do something about it now.